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Industry Effects of Monetary Policy: Evidence from India

  • Ghosh, Saibal

The study exploits 2-digit level industry data for the period 1981-2004 to ascertain the interlinkage between a monetary policy shock and industry value added. Accordingly, we first estimate a Vector Auto Regression (VAR) model to ascertain the magnitude of a monetary policy shock on industrial output. Subsequently, we try to explain the observed heterogeneity in terms of industry characteristics. The findings indicate that (a) industries exhibit differential response to a monetary tightening and (b) both interest rate and financial accelerator variables tend to be important in explaining the differential response.

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File URL: https://mpra.ub.uni-muenchen.de/17307/1/MPRA_paper_17307.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17307.

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Date of creation: Jan 2009
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Publication status: Published in Indian Economic Review 1.44(2009): pp. 89-105
Handle: RePEc:pra:mprapa:17307
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  1. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Nachane, D M & Ray, P & Ghosh, S, 2001. "Does monetary policy have differential state-level effects? an empirical evaluation," MPRA Paper 2708, University Library of Munich, Germany.
  3. Dedola, Luca & Lippi, Francesco, 2005. "The monetary transmission mechanism: Evidence from the industries of five OECD countries," European Economic Review, Elsevier, vol. 49(6), pages 1543-1569, August.
  4. Kristin J. Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," NBER Working Papers 9095, National Bureau of Economic Research, Inc.
  5. Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "What Constrains Indian Manufacturing?," Macroeconomics Working Papers 22162, East Asian Bureau of Economic Research.
  6. Bernd Hayo, 1999. "Industry Effects of Monetary Policy in Germany," Macroeconomics 9906009, EconWPA.
  7. Pattnayak, Sanja S. & Thangavelu, S.M., 2005. "Economic reform and productivity growth in Indian manufacturing industries: an interaction of technical change and scale economies," Economic Modelling, Elsevier, vol. 22(4), pages 601-615, July.
  8. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
  9. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society.
  10. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  11. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  12. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  13. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
  14. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
  15. Gert Peersman & Frank Smets, 2005. "The Industry Effects of Monetary Policy in the Euro Area," Economic Journal, Royal Economic Society, vol. 115(503), pages 319-342, 04.
  16. Gerald A. Carlino & Robert H. DeFina, 1997. "The differential regional effects of monetary policy: evidence from the U.S. States," Working Papers 97-12, Federal Reserve Bank of Philadelphia, revised 01 Mar 1998.
  17. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  18. Sanyal, Paroma & Menon, Nidhiya, 2005. "Labor Disputes and the Economics of Firm Geography: A Study of Domestic Investment in India," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 825-54, July.
  19. Joe Ganley & Chris Salmon, 1997. "The Industrial Impact of Monetary Policy Shocks: Some Stylised Facts," Bank of England working papers 68, Bank of England.
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